THE MARKETS: Market Place; Adding to Loss Of Investments, A Loss of Faith

In the nine weeks beginning a week before Memorial Day, the traditional start of summer, the major United States stock market averages have lost more than 20 percent of their value, one of the fastest falls in Wall Street history.

The decline has come amid signs that some Americans are beginning to lose faith in the stock market as a sure-fire long-term investment. Money is flowing out of mutual funds at the fastest rate in years, faster even than last September, in the wake of the terrorist attacks.

Historically -- at least since the end of the Depression -- such rapid declines have come near the end of bear markets and have often been followed by rapid advances.

Many investors hope that will be the case this time, too, and Wall Street analysts talked of capitulation yesterday -- a term indicating that so many have sold that the bottom must be near. Some even pointed to the rally of more than 50 points in the Dow Jones industrial average in the final seven minutes before the stock market closed yesterday.

Certainly, investors are leaving the market. ''Money stopped going into stock funds in May,'' said Robert Adler, president of AMG Data Services, which monitors cash flows into mutual funds. The redemptions gradually grew, and by the week ended on Wednesday they were running at twice the peak level of last September.

''There has been denial'' that prices were falling, said Hugh Johnson, chief investment officer at First Albany. ''Traders said they were long-term investors and were not worried.'' But now, he said, he is hearing from more customers who want to cut their losses by selling stocks.

Mr. Johnson told of one couple who had lost half the $1.8 million they had when they retired and are now considering putting more money into bonds as well as going back to work. They are also cutting back on spending, a decision that if followed by enough consumers could slow the economy. But with most people still holding jobs, that kind of behavior appears largely limited to retirees so far.

This summer has recorded a continuation of the scandals that alarmed, but did not completely depress, investors some months ago. Even before the summer slide began, energy companies were being forced to admit that they had made trades that did nothing except inflate their revenue figures, and the Rigas family, accused of using Adelphia Communications as a piggy bank, had been forced to resign. Bernard J. Ebbers, the founder and chief executive of WorldCom, had been forced to resign, but there had been no indication yet of accounting fraud at that company.

Despite all that, blue-chip stocks stood up reasonably well until May 17. The Dow was at 10,353.08, far above where it was at the start of the year. Public pressure for an overhaul of corporate America appeared to have faded. The House had passed a relatively weak bill, and some lobbyists expected the Senate to deadlock on the issue.

Just what caused share prices to plunge is not clear. But the disclosure by WorldCom late last month that it had improperly accounted for $3.8 billion in expenses may have been significant. The company's stock, and its bonds, had become a favorite of investors who focus on value rather than growth -- a group of investors who had not owned the worst performers before this. But the collapse of WorldCom, which is expected to file for bankruptcy protection soon, has depressed many of those investors.

The WorldCom debacle also renewed public pressure for Congressional action, and the Senate passed a bill last week that is far stronger than anyone thought possible a few weeks earlier. It remains to be seen what will come out of the House-Senate conference committee.

In the nine weeks since May 17, there has been nowhere to hide in the stock market.

The Dow remains the most widely followed stock index, and the relentless declines, often measured in hundreds of points, have taken a toll.

In the nine-week period, the Dow has shed 2,333 points. That is 22.5 percent of its value, but the psychological significance of the decrease may be greater than that. The decline has wiped out more points than were in the index on Jan. 20, 1989, when the first President Bush was inaugurated.

Of the 30 stocks in the Dow, every one is down, with the best of the group, Microsoft, off 11.5 percent in the nine-week period. Of the stocks in the Standard & Poor's 500, 495 have fallen. The index is off 23.5 percent.

Investors in funds indexed to the S.& P. 500 have also been selling. Because those funds typically carry no cash reserves, such selling can translate immediately into orders to sell all 500 stocks.

In the 1980's and even more so in the 1990's, many investors came to believe that stocks were virtually guaranteed to rise over the long term. Polls show many are still confident. A poll of investors in June, conducted by Northwest Survey and Data Services, found that half expected the market to rise 10 percent a year or more in the next decade. That is down from earlier surveys but is still relatively optimistic.

Such confidence, though, runs head on into the reality that after stunning returns in late 1990's, the market has lost a lot of money for investors who got in late. Many who still believe in a rising stock market apparently have no more money that they are willing to bet on the rise.

The S.& P. is now down 44.5 percent from the peak it set in early 2000. That is approaching the 48.2 percent fall recorded in the 1970's in the most brutal bear market of the postwar period. That bear market, which ended Oct. 3, 1974, came in the midst of a severe recession that was far worse than the minor downturn that is thought to have ended early this year.

The Dow is down 31.6 percent from its peak, while the Nasdaq composite index, which starred on the way up, has lost 73.9 percent of its peak value, with a fall of 24.2 percent over the last nine weeks.

The economic statistics of late have indicated a moderate recovery, and both President Bush and Alan Greenspan, the chairman of the Federal Reserve, have sought to reassure investors about the economy over the last two weeks. But the stock market weakness has inevitably stirred talk of a double-dip recession.

Comparable falls over nine-week periods have occurred in just four eras since World War II: in 1962, when President John F. Kennedy scared investors as he forced U.S. Steel to back down on a price increase; in 1974, with the nine-week period ending less than a month before that bear market bottomed; 1987, when a crash terrified investors but had little effect on the economy; and last autumn, when share prices plunged after the Sept. 11 attacks.

In each of the first three cases -- 1962, 1974 and 1987 -- there was a solid long-term opportunity to buy stocks. There was also a rally after the market hit bottom last Sept. 21, but those gains have now evaporated.